Colorado - Life Exam
Morgan is the owner and insured of a $1 million life insurance policy. At her death, the proceeds were payable to her son in a lump sum. What amount, if any, must be included in valuing Morgan's estate?
$1 million
Jenny bought 250 accumulation units in a variable annuity subaccount at $10 each. Two months later, because of the positive performance of the stocks in that subaccount, the net asset value of its accumulation unit rose to $12. If Jenny decides to buy more units in that subaccount at that time, at which price would she be buying additional accumulation units?
$12 per unit
Julia has decided to surrender her $250,000 whole life policy, which has a $31,000 cash value. If she elects the extended term nonforfeiture option, Julia will receive a term policy with a face value equal to what amount?
$250000
Annuity Purchase Rate
In an annuity, the amount of monthly income provided for every $1,000 of annuitized principal.
Jason, age 27, is single, works for a small computer company, and earns $150,000 a year. Because the company does not have any retirement plan for its employees, Jason set up and contributed to a traditional IRA this year. Which of the following statements is correct?
Jason can deduct the full amount that he contributes to his traditional IRA
USA PATRIOT Act
Created after September 11, 2001, this federal act requires that all financial institutions create, execute, and maintain anti-money laundering (AML) programs.
Backdating Applications
Dating an application with a past date so that the insured's age is lower, thus qualifying for a lower premium.
Nicole, age ten, is the insured in a traditional "jumping juvenile" policy with a $5,000 face amount. When she reaches age 21, what will most likely happen to the policy's face amount?
it will increase to $25000
Which of the following presents a situation of pure risk?
knowing that his family depends o his income, Franklin wants to insure his life
Harold's annuity will pay him an income for life, no matter how long he lives. If he dies before the payout equals the contract's the amount annuitized, the remainder is paid to his son, as beneficiary. Which of the following income payment options has Harold chosen under his contract?
life income with refund guarantee
Indexed annuities allow contract owners to participate in some of the growth in the stock market while avoiding possible losses of principal by which one of the following processes?
linking the interest to be credited to the contract to the growth of an equity (stock) index, while, at the same time, providing for a guaranteed minimum rate of return for the length of the contract
the annuity's basic purpose is to
liquidate a sum of money and protect against outliving one's income
Variable Annuity Annuitization
The process by which a sum of money is converted into periodic payments through a variable annuity contract.
Life Settlement Provider
The purchaser of a life insurance policy from the policyowner in a life settlement transaction.
Placement, layering, and integration are steps in what kind of financial activity?
money laundering
James holds a life insurance policy and declares personal bankruptcy after incurring considerable medical bills. The terms of the policy state that only he may assign any part of the policy benefits. Is James likely to lose the cash value in his policy to creditors?
no, because of the policy terms
Belinda owns a $750,000 life insurance policy and received a $200 check for her first dividend payment from Alpha Insurers. How will this dividend payment be treated for income tax purposes?
not subject to income tax
Which of the following is the underwriting method most widely used by insurance companies today?
numerical rating system
If a worker has over 40 OASDI quarters of coverage what is his or her Social Security worker status?
permanently insured
Assuming no relation other than that stated, insurable interest exists in all of the following situations EXCEPT:
peyton on his life coach
Straight whole life, limited pay whole life, and modified premium whole life all have which one of the following characteristics in common?
premium amounts that are known in advance
what must an annuity owner do to withdraw funds from his or her annuity contract?
request it from the insurer
Johnson Industries funds its workers' compensation program. It will use these funds to pay employee's claims. What type of insurer is Johnson Industries?
self-insurer
Carolyn bought a $500,000 five-year renewable term policy with a guaranteed renewal rate. Two years after buying it, she develops cancer and is no longer insurable. If Carolyn is alive at the end of the five-year term, which of the following statements is most correct?
she can renew the policy but must pay a higher premium based on her age at the time of renewal
Which one of the following statements about credit life insurance is most correct?
state laws typically set a maximum coverage limit that creditors can offer to borrowers
Roberta owns a whole life insurance policy and has requested that the beneficiary select a death benefit settlement option "without a life contingency". All of the following would meet this request EXCEPT:
straight life income option
In calculating their mortality charges, life insurers today generally use:
the 2001 CSO table
Lisa is 72 years old and is thinking about purchasing a fixed deferred annuity to hold the proceeds gained from the recent sale of her house. Which of the following would suggest that this product may not be well-suited for Lisa?
the annuity has a 10-year surrender charge period
The human life value approach to determining life insurance needs is essentially based on which of the following factors?
the applicant's estimated net future earnings
Edgar is insured under a $1 million life insurance policy and dies during the grace period. What happens if Edgar had not yet paid the premium at the time of his death?
the death benefit will be paid after the premium due is subtracted from it
Pamela owns a fixed deferred annuity that she will annuitize next year when she retires. Which of the following is a key factor in determining the percentage of her monthly annuity payment that will be subject to tax?
the expected return
Which of the following statements regarding third-party ownership of a life insurance policy is correct?
the insured has no rights in the policy
If a variable universal life policyowner chooses death benefit option 3, what will the benefit equal?
the policy's specified amount plus the greater of total premiums paid or actual cash value
Angela is the beneficiary of her mother's group life insurance policy. At her mother's death, Angela decides to receive the proceeds under a life with term certain settlement option. Which portion of the benefit payments, if any, will be subject to taxation?
the portion representing the interest on the death proceeds is taxable
Class Designation
A type of life insurance beneficiary designation that identifies the beneficiaries not by name but by their being part of a named group.
Constructive Policy Delivery
One of the two types of policy delivery, this one occurs when the insurer mails the policy to the producer responsible for delivering the policy to the policyowner with no conditions that must still be met.
indeterminate premium whole life insurance
A type of whole life insurance that is issued with two premium rates: a low introductory rate and a guaranteed maximum rate. Premium adjustments may be made as often as once a year, though this varies by insurer
Guaranteed Minimum Withdrawal Benefit (GMWB)
A variable annuity rider that guarantees that the owner can withdraw a minimum amount annually without a surrender charge.
Legal Policy Delivery
One of the two types of policy delivery, this one requires personal delivery to the client and an explanation of conditions to be met.
As general rule, life insurance policy loans normally become available after a policy has been in force:
3 years
Assuming they meet the age and financial dependency requirements, each parent of a deceased worker is eligible to receive Social Security survivor benefits equal to:
75 percent of the worker's PIA if two parents are eligible, or 82.5 percent of the PIA if only one parent is eligible
All the following statements regarding tax-free Section 1035 exchanges are correct EXCEPT:
A 1035 exchange is not considered a policy replacement for regulatory purposes.
Participating Life Insurance
A category of life insurance, most commonly sold by mutual insurance companies, that features the distribution of policy dividends to policyowners.
Delivery Receipt
A document that must be signed by a new policyowner attesting that a newly issued life insurance policy was received.
Indeterminate Premium Term Life
A form of term life insurance in which the premium starts lower than a standard guaranteed premium term life policy but can increase or decrease between the initial premium and a maximum limit set by the insurer.
Noncontributory Group Life Insurance Plan
A group life insurance plan in which the plan sponsor (employer) pays the full premium without requiring participant contributions.
Consideration clause
A life insurance policy provision stating that the applicant's consideration consists of both the signed application and payment of the first premium.
Spendthrift clause
A life insurance policy provision that protects policy death benefits from the claims of the insured's or the beneficiary's creditors and gives the policyowner the right to stipulate the settlement option that will be used in distributing policy proceeds.
Equity Indexed Annuity (EIA)
A nonvariable annuity whose interest return is tied to the performance of a stock index, such as the S&P 500.
Market-Value Adjusted Annuity (MVA)
A nonvariable market-linked annuity that adjusts the interest rate when the contract is renewed, annuitized, or surrendered.
separate account
An account maintained by variable insurance companies to hold and manage variable life insurance and variable annuity funds. Separate accounts consist of multiple subaccounts that each have a unique investment objective.
life settlement
An arrangement involving the sale of an existing permanent life insurance policy, by a policyowner who is not terminally ill, for more than its cash value but less than its death benefit.
Human Life Value Approach
An old method of determining life insurance needs based on the discounted value of a person's future income.
fixed annuity
Any type of annuity that guarantees both the annuity principal and a specified rate of interest to be credited to the contract.
Field Underwriting
Refers to the activities producers undertake when completing insurance applications. These activities provide insurers with additional information that is important to the underwriting process.
statement of continued good health
Signed by the policyowner upon delivery of a life policy when a premium deposit was not paid with the application, this statement attests that no change in health has occurred since the application was signed.
Partial Surrender (Life Insurance)
Surrendering a portion of a universal life or adjustable life policy to access a portion of the cash value and/or to reduce the premium.
ERISA
The 1974 federal law that lays the foundation for employer retirement plan qualification.
FINRA
The Financial Industry Regulatory Authority that regulates insurers and producers that sell variable life insurance and annuity contracts.
Cash Value Loan
The basic way in which the owner of a permanent life insurance policy may access the policy's cash value while the insured is alive.
Nonforfeiture Options
The different ways a policyowner can receive a whole life insurance policy's cash value upon policy surrender.
In which of the following situations would the facility of payment clause of a life insurance policy NOT be applied?
The insurer learns, when paying the claim, that the designated beneficiary had no insurable interest in the insured at the time of death.
For a life insurance contract to be enforceable, which of the following must be legally competent to enter into the agreement?
applicant and insurer
Term Life Insurance
The most basic type of life insurance. It provides temporary protection for a specified, limited time and does not generate a cash value.
Absolute Assignment and Collateral Assignment
The two ways in which a life insurance policyowner may transfer policy ownership to another party.
Primary and Contingent Beneficiaries
These terms refer to the first and second orders of succession in a beneficiary designation.
Fully Insured Status (Social Security)
This Social Security insured status makes workers eligible for all types of Social Security benefits.
Currently Insured Status (Social Security)
This Social Security insured status makes workers eligible for death benefits only.
Immediate Annuity
This basic form of annuity begins distributing income immediately following payment of single large premium.
Term Life Insurance
This basic form of life insurance provides temporary protection and does not include a cash value while the insured is alive.
Juvenile Life Insurance
This is a type of whole life insurance designed for young insureds (under age 21) in which the face amount increases significantly upon reaching a specified age in adulthood.
General Account
This is the insurance company's asset account into which fixed annuity and whole life insurance premiums are invested.
Suicide Clause
This life insurance policy provision excludes coverage if the cause of the insured's death within the first two policy years is suicide.
guaranteed insurability rider
This life policy rider guarantees that additional coverage can be added to a whole life policy even if the insured has become uninsurable.
Disability Income Benefit Rider
This life policy rider pays a monthly benefit to the insured if s/he becomes permanently disabled.
Long-Term Care (LTC) Rider
This life policy rider provides funds to help pay the costs of long-term medical and nursing care.
Renewable Term Life Insurance
This optional form of level term life insurance lets the policyowner renew the policy without having to prove insurability.
Convertible Term Life Insurance
This optional form of term life insurance lets the policyowner convert the policy to a whole life policy without having to prove insurability.
Level Term Life Insurance
This popular form of term life features a death benefit and premium that remain level for the term of the policy.
accelerated benefit rider
This rider permits an insured suffering a terminal illness to access a portion of the life policy's death benefit while alive.
For which of the following planning needs would purchasing an insurance policy be LEAST appropriate?
Tina, who wants to save money for a vacation next year
Agent's Report
Written from the producer's perspective, this attachment to a life or health insurance application provides information about the client that would be useful to the underwriter.
Which organization is NOT eligible to sponsor a 403(b) plan for its employees?
a real estate partnership
Which of the following meets Colorado's regulation of the advertising and sales promotion of life insurance and annuities?
an advertisement that is truthful and relevant
Which of the following statements about children's term riders is correct?
if a child converts coverage to a permanent policy, the new policy's face amount can be greater than the term rider coverage
Benefits paid through a life insurance policy's accelerated benefits rider:
can be used for any purpose
Chester and his wife, Nellie, established a 529 plan for their daughter and contributed $5,000 to her account this year. Six months later, they withdrew $20,000 to pay for their daughter's college tuition. Which statement is correct?
chester and nellie do not have to pay tax on the distribution
The owner of a deferred annuity normally has the right to do all of the following, EXCEPT:
choose or change the income payout option before or after the annuity starting date
the main purpose of key person life insurance is to
compensate the business for the loss of its key employee
When meeting with a prospect to discuss life insurance, a producer makes disparaging comments about the financial stability and reputation of a competitor to dissuade the prospect from purchasing its policies. Which unfair trade practice has the agent committed?
defamation
All of the following distributions from a qualified plan are exempt from the 10 percent penalty tax on premature distributions, EXCEPT:
distributions made because the participant needs the funds to pay for homeowners insurance premiums
The new Colorado Insurance Commissioner takes very seriously his responsibility for the execution of the insurance laws in the state. As Commissioner, he can be expected to perform all of the following EXCEPT
establish policy premiums
Which describes the type of relationship based on trust that exists between the insurer and its appointed agent?
fiduciary
Agent Ross receives an unearned premium belonging to one of his customers when the customer cancels her policy. How must Ross treat the funds?
he should remit the to the customer as soon as possible
which of the following statements regarding participating life insurance policies is correct?
they are eligible for policy dividends
From the date an insurer receives a complete request for payout under an individual life insurance policy until the claim is settled, what rate of interest must the company pay on the policy proceeds?
two percentage points above the federal discount rate
what is the standard life insurance policy suicide exclusion period
two years
For which of the following types of life insurance is a cost-of-living (COL) rider generally unnecessary and therefore unavailable?
universal life insurance
The life insurance policy rider that makes the insurance company pay the policy premiums if the insured becomes totally disabled is called a(n):
waiver of premium rider
A life insurance policy matures or endows when its guaranteed cash value equals its face amount. With an endowment contract, when does the policy endow?
well before age 120, usually at age 65